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The Sting

Mr. Johnston is a retired financial analyst in his eighties who has learned and lived through times most of us only read about. A letter he had written to his sons was provided to me by one of my Canadian business associates. I was so intrigued with the letter I contacted Mr. Johnston and had a lengthy phone conversation with him on this subject. Someone is always number one (currently the US) and there are many who "wannabe" number one (the BIS) as outlined in his letter. It has a tinge of "conspiracy" to the rationale but regardless, the underlying facts and scenario are quite accurate in my opinion. Look back at my previous comments on "conspiracy"; it makes no difference whether there is actually a "conspiracy" or not as the facts speak for themselves.

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Houston, Texas
July 15, 1997

My Dear Sons:

This is about "The Sting". This is about the sting that will smash the Great Bull Market. This is about the sting that will derail the gravy train. The sting is already in place and its trigger has already been pulled. The sting merely has to unfold. The public suspects nothing.

A sting is a confidence game in which the victim is deliberately set up to believe that he cannot lose, that he has a bird's nest on the ground. Then at the last moment the trap is sprung, and his dreams of riches turn to rags. This sting was made in Japan, with a strong assist from Switzerland.

To get a better idea of the Swiss Connection, we have to look at the Bank for International Settlements (BIS) in Basel. he BIS is the Central Bank's central bank. It was formed in 1930 to handle the collection of German war debt following World War I. Its members are the central banks of the industrial world, such as the Bank of England, the German Bundesbank, the Federal Reserve Bank, the Bank of Japan, and so on. It is almost certainly the most powerful financial institution in the world. Never once in its long history has it ever had to ask for help from any government.

A definite coolness exists between the BIS and the United States. This goes back to the Bretton Woods Conference in 1944, held to set up the machinery for resuming world business after World War II. Even though this conference established the gold-backed U.S. dollar as the only reserve currency, the U.S. did everything it could to torpedo the BIS and give sole power to the American sponsored International Monetary Fund. The war was not over in 1944, but the combatants still got together and defeated this U.S. grab. In the final showdown, the Europeans and Japan never completely trusted the U.S.

As the years went by, the BIS suspicions were justified. The U.S. began to abuse its reserve currency role by simply printing dollars. American companies began to buy control of businesses all over the world. In 1971, President Nixon took the dollar off the gold standard, and introduced the novel idea of floating currencies. Meanwhile, the U.S. national debt began to increase each year, until it now stands at about $5.5 Trillion, an astronomic amount that can ever, ever be repaid. It was clear that the U.S. was out of control.

Along about 1972, I began to spend a great deal of time and effort in studying the BIS and its agenda. The first thing I found was that although the U.S. had turned its back on gold, the BIS were aggressively buying it. By 1990, the BIS were by far the largest holder of gold, with more than one billion ounces. This amounts to an outright corner on gold.

The next thing I learned is that the BIS are extremely closemouthed. It keeps a low profile. Its favorite M/O is the sneak attack. They have their own word for this – "coup". Their ideal coup is one where the victim is taken by surprise, and does not even know what hit him. The BIS tries to leave no fingerprints. Thus their coups often become perfect crimes.

The third thing I learned was that the BIS had two ironclad objectives. Both were so bold that they would take your breath away:

1) To destroy the Soviet Union, as a threat to world peace.
2) To destroy the dollar as the worlds reserve currency.

We all know that the Soviet Union collapsed in 1989. This was done by the BIS without firing a shot. They simply loaned large sums of money to the Soviets, and then called the loans. Just a routine castration! A simple foreclosure. This is how they got the Russian gold.

The second goal, of bringing down the dollar as a reserve currency, has not yet been reached, but I believe it soon will be. This brings us to the present sting operation.

If you are going to derail the dollar and the Great Bull Market, you better bring a pretty big checkbook. The new money coming into the mutual funds is running about $20 billion a month. Unless you can top that kind of buying pressure, you don't have a chance. How in the world do you shoot down an animal that big and that powerful? In my opinion, the BIS and its Japanese partners have come up with an ingenious answer. It is big enough to work. It goes like this:

The sting began two years ago, in August 1995, when a rash of bad loans and insider scandals brought the Japanese banks to their knees. The BIS became alarmed, and advised the Japanese to lower their loan rates to ½%. This created an enormous gap between the low Japanese rate and the 6-½% U.S. rate. Into this gap poured speculators from Japan and everywhere else. The speculators would borrow yen in huge amounts. They would then sell the yen, and put the proceeds into U.S. paper, thus making an enormous, guaranteed return. This came to be known as the "Yen – Carry Trade". This yen – carry trade has been going on for over two years, in virtually unlimited volume. It created a huge demand for U.S. bonds, which in turn sustained a huge and unprecedented bull market in stocks.

In a similar fashion, the Japanese and others found that they could do the same thing with gold and this came to be known as the "Gold – Carry Trade". The speculators could borrow gold at about 1%, sell the gold, and then invest the proceeds in U.S. paper, with a huge guaranteed return. How delightful! How delicious! But how lethal!

I say lethal because this yen – carry, gold – carry Ponzi scheme has created a "potential short squeeze of colossal magnitude". (Michael Belkin, "Strategic Investments", May 14, 1997) Sooner or later, these fantastic leveraged schemes must be unwound. The gold and the yen which were borrowed and sold short will have to be bought back; and the bonds that were bought with borrowed money will have to be sold. The totals involved are probably well over a trillion dollars, or far beyond the mutual funds yearly take. Anything could trigger the debacle. As long as gold keeps going down or the yen keeps going down, no problem. As long as bonds keep going up, no problem. But once gold starts to rise, or the yen starts to rise; or once bonds start to fall, these huge positions would be unwound. There would be a run for the exits, and the panic would feed on itself. Margin calls would ruin the leveraged speculator in short order. There would be no way to stop the carnage. All it will take is a coup to start the waterfall.

We had the coup on June 24, 1997, though it was only vaguely understood at that time. The Japanese Prime Minister, Ryutaro Hashimoto, told a luncheon meeting at Columbia University, "I hope the U.S. will engage in efforts and in cooperation maintain exchange stability so we will not succumb to the temptation to sell off Treasury bills and switch our funds to gold".

In a matter of minutes, the NYSE collapsed, and the Dow-Jones closed down 192 points in a mini-panic. The victim's saw the trap for the first time! Then the media and Wall Street fell all over each other trying to control the damage, saying Hashimoto was misquoted, etc., etc. The various exchanges staged a desperate anti-gold raid, and soon had gold down to 12-year lows. The Street breathed a sigh of relief and returned to its summertime siesta.

But the damage was done. Now look at the mess that confronts the big-time gamblers. We now have gold at new lows and the bonds at new highs. Surely, this is a speculator's dream come true – well, isn't it? No, this is The Sting. The yen – carry and the gold – carry is still in place, and they still have to be unwound. The temptation Hashimoto mentioned now becomes unbearable. The Japanese cannot resist the chance to sell the bonds near their highs, or the chance to buy gold near its low. Do you imagine that the bonds will stay high or that gold will stay low? No way! The unwinding begins to feed on itself, and the 5000 mutual funds and all their friends will be unable to do a single thing about it. That's what you mean by The Sting.

I have no idea whether Mr. Hashimoto was acting on his own, or whether his words were part of a larger plan. I know one thing, though. This guy is no innocent babe in the woods. Before he became the Prime Minister, he was Japan's Finance Minister. He knew the ropes. He knew the big wheels at BIS. He knew all about yen – carry and gold – carry. He was telling his people that the game was over. Remember that these are the friendly little folks who gave us Pearl Harbor and the kamikaze! For just a fleeting second there, when Hashimoto spoke, the thought flashed across my mind that the Japs had just won World War II.

Another thought – the Japs could acquire gold in a different way. They could sell our bonds and buy the EMU, the new European currency that the BIS are sponsoring to replace the dollar. The EMU is expected to be a package combination of gold and paper.

So there you have the anatomy of the greatest sting in history. It is real. It is in place. It cannot be stopped. It can only feed on itself and get more and more desperate as the shorts are squeezed to death. And best of all for the BIS, the fingerprints on it are not Swiss – they are Japanese. Call this the "Karate Chop".

Think about this, and call me with your reactions. There is more to this story. Stay tuned.